Wednesday, December 5, 2012

How to Raise Your Rates By Offering Less Value

Good insights, thanks Derek. Solid advise once again. I'd like to offer a slightly different twist on this. It is one I have employed many times in the way we have sold our products. You need to be careful when you "bundle" component parts into your product message, especially if they can be presumed to have different values to different customers. Two things happen when you don't carefully plan this out:

1) You potentially devalue your product in the eyes of the customer, in that the additional components are presumed necessary, because the product by itself does not otherwise provide 'enough' value.

2) You devalue the additional components, the otherwise value-add's. While the hotel pool isn't a direct example of this, it is still an important related concept because it is one of the value-add's of that particular hotel. It presumably has different meanings to different customers and that in fact, is part of my point.

Today, many companies have procurement groups that are moving towards (if not already applying) a model of commoditizing the products or services they purchase. When you bundle, you may find that what you believe is an apples to oranges comparison with your competitors does not matter to these buyers. In the end, to get the sale, you may end up with price compression. The value-adds you have, especially if the others don’t, should be separate in order to realize their full, potential value. Sometimes it's better to get the base model in the door, even at a lower margin in order to sell-up the value-add's at a higher one.